Don't Let Your Managed Services Become Commodities

Within the past couple of years the term MSP (managed services provider) has become a hot acronym, highlighting companies that earn the majority of their revenue selling postinstallation support and troubleshooting services. That said, there are a number of VARs that are just now starting to sell managed services. With multiple offerings available, I enlisted the assistance of five managed services companies that offer management and automation solutions to MSPs to help VARs determine which managed services platform is right for them and their customers.

Should You Sell Premise-Based, Hosted Managed Services?
VARs first need to decide whether to sell a hosted solution or a solution that requires a hardware appliance to be left at the customer's site (aka premise-based). "In most cases, your customers won't have their own data centers, and they don't need another server to manage on their premise," says Dan Shapero, senior VP of marketing at Kaseya. "Plus, with a hosted model, a VAR can more easily provide an SLA [service level agreement] compared with selling a box and software license." Shapero sees the hosted managed services model being most effective for smaller end users — companies with 100 or fewer employees. "Once a company reaches 100 employees, it typically has 1 or 2 internal IT people and may prefer a premise-based solution," he says. According to Bryan O'Connor, VP of marketing at N-able Technologies, there is one other reason a customer may prefer a premise-based solution. "In situations where the customer has highly customized applications and/or business processes that need to be managed, a premise-based solution is necessary," he says.

Are You Prepared To Respond To Your Customers' Networking Needs?
Once VARs commit to selling managed services, they need to determine whether they're going to respond to problems themselves or outsource troubleshooting to a third party. In many cases, a smaller VAR won't have the internal resources to monitor and respond to networking issues, so it will have to rely on outsourcing. But, keep in mind, not all outsourcing options are equal. "With some of the large MSPs, there is a very real fear that the partner will actually come in and take over your customers," says Maurice Saluan, VP of channel management at Zenith Infotech. "VARs should ensure they are dealing with an MSP partner that will work directly with the VAR, engineer to engineer, rather than developing a relationship with the VAR's customers."

Knowing where the service is coming from is one other thing VARs need to keep in mind regarding outsourcing. According to Saluan, because of an IT labor shortage in the United States, much outsourced IT support comes overseas. "Some countries, such as India, are known for their IT talent," says Saluan. "Plus, the IT labor fees are about 1/3 compared to the United States." Even though some VARs may have an aversion to working with overseas-based MSPs, Saluan believes VARs need to be realistic regarding the benefit this economy of scale (e.g. a 200%-plus profit margin compared with a 30%-plus profit margin) can provide. "It doesn't make financial sense for a VAR to pay one or two engineers to sit in a server room and analyze raw data streams," he says. "Someone in India who sees 15,000 alerts an hour is not only less costly, but also is probably more proficient at analyzing, cataloging, categorizing, and reporting on managed services data."

Before you finalize your managed services model, Doug Wilson, top dog at HoundDog Technology, has one more important point for you to consider: "What if you have a customer — or several customers — that don't want managed services? They might actually prefer paying you only when you do work for them. We believe VARs need to listen to their customers and take a hybrid approach to selling managed services — using a managed services model for some customers and a break/fix or support bank model for other customers."

For more tips on avoiding managed services commoditization, go to BSMinfo.com/jp/3632.

Be Prepared To Evolve Your Managed Services
Even though managed services, as a whole, is showing signs of steady growth, it's important for VARs to realize that services that once drew high profit margins in the past, such as remote antivirus/antispyware monitoring and updating services, have evolved and become automated (i.e. low-margin) tasks. "Good MSPs and VARs change with their clients and with technology," says Saluan. "What this means is that when a technology becomes commoditized, the MSP/VAR will automate the service or subcontract it out via a strategic partnership, thereby lowering the cost of delivery." Following this advice, says Saluan, will allow the MSP/VAR to focus on more important and higher margin services.

Shapero echoes Saluan's advice and adds, "Additional tasks that should be automated include the auditing and discovery of assets on a customer's network, interrogating and managing data on a network, and systems monitoring. A VAR also could provide additional automated services via a command line interface such as defragging a hard drive or deleting temp files." So, what services are left that still require MSP/VAR assistance? "One of these is the remote management of customers' computers and applications," says Peter Sandiford, CEO of Level Platforms. "This is made possible, in part, due to Intel's commitment to active management technology [AMT] in vPro-equipped desktops and notebooks. Additional advanced services MSPs/VARs can sell are remote backup, patch management, scripting, and Web site monitoring. The most important consideration is to understand that your business will evolve as new technologies and services enter the market. The only way to avoid commoditization is to ensure your platform has the flexibility to take advantage of new developments so you can plug and play with different backup solutions, VoIP [voice over Internet Protocol] systems, outsourced NOC [network operations center] services, and others as required to meet customer needs." According to a recent IDC study, disk-based and remote storage generated $8 billion in user IT spending in 2006, and these managed services opportunities are expected to generate more than $60 billion in software and hardware purchases through 2012.

Prove The Worth Of Your Managed Services
All of the managed services vendors I spoke with agreed that shrinking managed services margins occur when an MSP/VAR proactively protects its customers' network and assets, but doesn't have anything to show the customer. "One of the most valuable resources services providers have is ROI reporting," says O'Connor. "The right reporting tool not only differentiates the MSP/VAR, it also can be used to maintain or even increase service levels, plan for and/or justify IT investments, and strengthen the MSP's/VAR's role as a trusted advisor. It's crucial for a services provider to have the means to identify, report, and prove how its value contributed to the customer's business goals."

One other pitfall MSPs and VARs are cautioned to avoid is automating their services to the point where they never see the customer in person. "Managed services, by design, reduces the number of truck rolls, which means techs won't be on-site as often," says O'Connor. "In this situation, out of sight, out of mind isn't what services providers want to fall victim to — they still need to maintain strong working relationships with their customers. If they perform tasks that have tangible value to their customers and provide services that cannot be easily replicated, commoditization won't be a word that will enter their business any time soon."